IR21 - How and When to Submit Tax Clearance for Resigned Staff?

In Singapore, employers are obligated to ensure that their foreign employees meet all tax responsibilities upon the cessation of their employment in Singapore, or departure from Singapore, or the commencement of an overseas posting. This process, referred to as tax clearance, involves submitting Form IR21 to the Inland Revenue Authority of Singapore (IRAS).

When to Seek Tax Clearance from IRAS?

Tax clearance is required for non-Singapore citizen employee who has worked in Singapore and are not under the categories or scenarios listed by IRAS. For instance, employer must notify IRAS for Singapore Permanent Resident employee who plans to leave Singapore permanently. Employer must file Form IR21 no less than one month before the employee’s:

1. End of Employment: When the employee resigns or is terminated.

   
   

2. Overseas Assignment: When the employee is assigned to work abroad.

   
   

3. Leaving Singapore: When the employee is planning to stay outside Singapore for more than three months.

This advance notice gives IRAS adequate time to carry out the assessment whether the employee has any outstanding tax liability. Submitting Form IR21 promptly ensures that the tax clearance in Singapore proceeds smoothly.

IRAS Process on Tax Clearance for Resigned Staff

1. Determine Whether Tax Clearance is Necessary: Refer to latest information published on IRAS website and utilise the IRAS Tax Clearance Calculator to check whether the employee needs to seek tax clearance.

   
   

2. Filing Form IR21:

   
   

   • Online Submission: Log into myTax Portal using CorpPass, go to the "Employers" section, and select "File Form IR21." Enter accurate details about the employee, including personal information, employment history, and earnings. E-filing is recommended for quicker processing, as 80% of electronic submissions are processed within 7 working days. This ensures that IRAS processes the tax clearance efficiently. 

     
     

   • Paper Submission: If necessary, mail the completed Form IR21 to IRAS at 55 Newton Road, Singapore 307987. However, processing may take up to 21 days for paper forms, which could delay the tax clearance and disbursement of withheld payments.

     
     

3. Withholding Monies Due: From the moment you are informed of the employee’s departure or termination, you are required to withhold all monies due to them (e.g., wages, bonuses) until tax clearance is obtained. Failing to do so may result in the employer becoming liable for the employee's tax liability.

   
   

4. Receiving the Tax Clearance Directive: Once the process is complete, IRAS will issue a clearance directive, indicating the tax bill due. Employer must follow this directive and only release the withheld funds once tax clearance for resigned staff has been finalized. Failing to adhere to the directive may result in the employer being liable for additional penalties or tax liability.

Penalties for Late or Non-filing of Form IR21

Failing to file Form IR21 on time or neglecting it at all not only will cause the employer to be held liable for the employee’s tax liability, but it can also result in significant penalties. Employer may face a fine of up to $5,000 or receive a court summon. It is employer's responsibility to notify IRAS at least one month before any employee leaves to ensure proper processing of the tax clearance. 

Other Tax Liability in Filing Form IR21

• Additional Income: If the employee earns additional income after Form IR21 has been submitted, an amended Form IR21 must be filed to seek tax clearance before that income is released. This ensures that all taxable income is considered in the tax clearance process.

  
  

• Unexercised Share Options or Unvested Share Awards: If the employee has unexercised share options or unvested share awards, these will be treated as gains at the time of tax clearance, according to the "deemed exercise" rule. Employers are required to report these in Form IR21 as part of the employee's tax liability.

Notify IRAS Earlier to Receive Tax Bill

In conclusion, it is essential for employers to submit Form IR21 promptly when a foreign employee is ending employment or departs from Singapore. This ensures that any outstanding tax liabilities are addressed with IRAS. By adhering to the required timelines and procedures, employers can mitigate the risk of penalties and ensure a smooth administration process.